How to Make Mitt’s Tax Rate Look 3.5% Higher Than It Was

As you’ve surely heard, Mitt has finally released his tax return for 2011 along with a statement signed by Pricewaterhouse Coopers and certified by its General Counsel, Diana Weiss, summarizing what he paid for a 20 year span of time: 1990-2009.

Mitt’s campaign admitted this afternoon that he had paid more taxes than required this year to ensure he fulfilled an earlier statement that he always paid at least 13%. Had he deducted everything he could have, TPM figures, he’d have paid 12.2%. So we know what we’re seeing was manipulated for public consumption.

Greg Sargent tells us another way it was manipulated: by taking an average of the rate paid each year, rather than taking his total income and his total taxes and calculating that percentage. This has the effect of hiding the years when he paid almost no taxes on a whole lot of income.

Center for Tax Justice notes one reason this kind of average skews the PwC summary greatly.

Further, the summary provided by his lawyer is playing games by averaging Romney’s 20-year tax rate. Including the years 1992-97 skewed his rate upwards because during those years, the capital gains rate was 28 percent instead of the 15 percent it is now. If they’d averaged only the last 15 years, his rate would have been much lower.

And we know that the averaging has skewed the tax rates. Consider the last bullet from the PwC letter:

Total federal income taxes owed, total state income taxes reported, and total donations deducted during the period represent 38.49% of your total adjusted gross income for the period.

You’d think, given the campaign’s admission they were just averaging the tax rates overall, this would be the sum of those averages. But it’s not:

If you add up those three average amounts, it equals 42.01%. Yet PwC admits that the total is actually just 38.49%–over 3.5% lower than the summed averages.

Furthermore, there seems to be more funny business going on here. That last bullet is not including like categories: it adds up “total income taxes owed,” “total state income taxes reported,” and “total donations deducted.” Why distinguish between what was (or is) owed at the federal level from what was reported at the state level?

That inconsistency of verbiage carries through to the base definitions earlier in the memo.

Each of the bullets defining the average–federal, state, and charitable deductions–takes the amount from “the federal income tax returns prepared during the period.” But when the memo confirms that the lowest rate Mitt ever paid was 13.66%, it refers to the “federal income tax returns as prepared,” without the “during the period” qualifier. This leaves open the possibility that Mitt has submitted some revised tax returns since that period–which ended in 2009. Given that there have been questions about Mitt’s residency, I wonder, too, why PwC didn’t take state amounts from state returns. Also, when the memo says “donations” in the last bullet, is it referring solely to charitable donations, or might it include gifts to his sons? Keep in mind, too, that it refers to amounts deducted, not amounts paid; Bain execs have long tithed stocks to the Mormon Church.

When TPM asked Mitt’s campaign whether they had amended earlier returns to come up with these results, they didn’t answer right away.

Did Romney artificially inflate his tax rate using the same strategy in other returns? That’s the biggest question raised by the disclosure of his move to take fewer deductions in 2011.
The Romney campaign did not immediately respond to questions over whether Romney amended any of his previous returns.

At the very least, the 2nd and the last bullets both allow for the possibility that Mitt’s federal returns have been changed. Indeed, when you consider Mitt’s rate before the change in capital gains had to have been far far higher, it may well allow for years when Mitt didn’t pay any federal taxes, but has since revised his returns to pay at least 13.66%.

And in any case, we know that the averages given skew his tax and donation rates by at least 3.5%.

@rosalind: I really don’t mind it being deductible, but I do think it should be fair game. If you adhere to a religion that requires you to donate millions in support of–among other things–political campaigns to keep gays unequal, that should be OK to talk about. Catholicism–whether one supports or opposes abortion, and whether one follows the Beatitudes for another–has been for years.

Non-profit deductions are, to me, a really weird way to support things we all recognize shouldn’t make a profit. Now, the Mormon Church is awfully close to the point where they shoudl be stripped of that status, both for their involvement in politics and because they’re very profitable. But until we find a better way to pay for social good in our hyper capitalist society, I’m okay with it in principle.

@Phil Perspective: oh i get the religion part, it’s just the IRS states “if you receive a gift or other benefit from the church in exchange for the donation, you must reduce the tax deduction by the value of the gift.” it seems the benefit Mitt gets is getting to be a member of the Church.

rubs me the wrong way that someone giving to their church out of their own freewill gets equal Tax treatment with someone forced to hand over a specific amount cash to even set foot in their church.

@rosalind: That’s what I’m wondering–whether the tax preparer refused to do it or was advised not to, and then they had someone–not the GC–sign “pricewaterhouse coopers” as if that was a person (it is, in Mitt’s book), and then the GC signed that PwC had really signed it. And a notary signed that the GC signed.

NH has no state income tax. Doesn’t Mitt have a big “lake house” up there?

Whatever happened to the alleged theft of the Romney returns from PWC? Was that a Karl Rove smokescreen? Karl once planted a bug in his own office, then called in the FBI and blamed an opponent, legend says.

@Citizen92: Yup, and even UT has a far lower tax rate than MA, which at least NOW has a high capital gains tax.

And if you eyeball it, he MUST have been claiming residency in not-MA for some chunk of this period, so the question is whether it was one he later claimed to be a MA resident so he could be governor.

I don’t know the answer, but there are three categories: Fed, State, and charity, and we have reason to suspect he cheated all of them (particularly when you consider he’s supposed to tithe 10% and yet his 30% charity this year MUST mean in other years his total charity was less than 10%). ANd on all three PwC is using fudgy language, making it distinctly POSSIBLE the suspicions we’ve all had are correct. And that’s before the Swiss tax dodging.

The nexus of taxes and residency has reared its inconvenient head before. Mitt proved with enough determination, you can retroactively change your residency by writing a check to ‘reimburse’ a state taxing authority because they “misunderstood” your true abode.

I’m sure there is lots of numerical trickery going on to get that percentage up to 13. But I don’t think the big scandal is that he’s fudging a real tax rate of 9% or 10% (which of course he probably is).

I think it will be like his magical IRAs that got over a hundred million dollars. I think we’ll be seeing a remarkably low taxable income over the years that somehow doesn’t add up to the vast wealth he has accumulated.

But seeing as the IRA issue never got any traction, I can’t see his tax returns mattering for much longer either. The media has gotten over it, moved on, and sighed their that-is-so-August sigh of impatience. Their spin now seems to be that Mitzy has come clean, let’s stop beating a dead horse, and “besides, Hillary’s futures trading, they all do it. Let’s talk about Simpson Bowles like grown ups now”

@guest: Instead of “I think we’ll be seeing…”, I should have said “What I think he’s hiding and we’ll never get to see…”.

But if $100M in an IRA wasn’t a scandal for more than a few hours, it’s hard to imagine what’s so horrible that they can’t release those returns. It has to be criminal, so I’m still betting on the USB Swiss bank account tax evasion schemes and Mitzy & Ann taking the amnesty when they got caught.

@Citizen92: Right–that’s precisely why the different language on state and federal is so suspicious. Add in the fact that he probably wasn’t living in MA when he said he was living in his son’s basement, and he probably had to revise his residency THERE from NH to MA.

The fact of the matter is 2011 is a tax year of Democrats making. How much should wealthy Americans like Mitt really be paying? How much more would they have paid if Obama had not made Bush tax cuts his very own? Nobody seems to be pointing out his percentages are the result of years of neoliberal D control in the House, Senate and WH.

While I have always appreciated (an understatement) people like Marcy’s ability and willingness to sort through weeds which would make my head explode, I really don’t like penny anteing anybodies tax form like this post does. What we need is a party, a federal progressive (and i don’t mean to imply D’s are progressive at all) system which insists this type of wealth/unearned income is taxed much, much more than this. The big picture was always ignored by both sides through this kerfuffle.

The man and his wife paid about as much as most folk who are fortunate enough to have work at all would pay in Social Security. Then the average working stiff would see at least that much more deducted from their check. At least! We don’t get interest income while uncle sam holds our check deductions over a year. We don’t get to go out and destroy an American manufacturing company sending jobs to China with our tax money or develop Rush Limbaugh’s radio empire…. Rich people who pay so little do.

We can’t attack Romney wealthy folks rates with any sincerity unless we attack all in both parties who make and preserve this law and how they do it.

P.S. What percentage of the Romney rich taxes went to medicare.. or even to their own health care costs?

But one of the reasons I demonize Mitt, including with this post, is because he is the poster child for what is wrong, for the way both parties have been catering to looters like Mitt for years. And looking closely at the games someone plays with his tax returns, and nothing that Mitt used to pay almost twice what he now does in capital gains, is a way to educate people about this. It’s a very powerful counterweight to all the bullshit propaganda about entrepreneurs and job creators.

The Great Orange Satan has a diary about Ryan’s tax problem. Seems he and his wife had to do a hasty amendment to their return, because they had somehow ‘overlooked’ $60K of income from a trust fund. That’s 20% of their reportable income for last year, right there. (Added $19K to their tax bill.)

I see more weaseling here. The discussion has been about how much or little Romney has paid in taxes. It is not about how little the Romneys have left to live on after paying out all their “obligations”. How much he (or you and I) might give away at our discretion is irrelevant to a discussion of our tax obligations. I realize that such giving can affect one’s tax burden, but that’s already considered in the taxes. Thus instead of 42%, the amount paid in taxes taxes only amounted to 25.5% of his income. Whether he spent his money on charity or gambling is irrelevant to the issue of his tax rate.

Close to half of U.S. households currently do not owe federal income tax. The Urban Institute-Brookings Tax Policy Center estimates that 46 percent of households will owe no federal income tax for 2011. [1] A widely cited figure is a Joint Committee on Taxation estimate that 51 percent of households paid no federal income tax in 2009.[2] (The TPC figure for 2009 also is 51 percent.) [3]

These figures are sometimes cited as evidence that low- and moderate-income families do not pay sufficient taxes. Yet these figures, their significance, and their policy implications are widely misunderstood.

■The 51 percent and 46 percent figures are anomalies that reflect the unique circumstances of the past few years, when the economic downturn greatly swelled the number of Americans with low incomes. The figures for 2009 are particularly anomalous; in that year, temporary tax cuts that the 2009 Recovery Act created — including the “Making Work Pay” tax credit and an exclusion from tax of the first $2,400 in unemployment benefits — were in effect and removed millions of Americans from the federal income tax rolls. Both of these temporary tax measures have since expired.

In 2007, before the economy turned down, 40 percent of households did not owe federal income tax. This figure more closely reflects the percentage that do not owe income tax in normal economic times.[4]

■These figures cover only the federal income tax and ignore the substantial amounts of other federal taxes — especially the payroll tax — that many of these households pay. As a result, these figures greatly overstate the share of households that do not pay federal taxes. Tax Policy Center data show that only about 17 percent of households did not pay any federal income tax or payroll tax in 2009, despite the high unemployment and temporary tax cuts that marked that year.[5] In 2007, a more typical year, the figure was 14 percent. This percentage would be even lower if it reflected other federal taxes that households pay, including excise taxes on gasoline and other items.

■Most of the people who pay neither federal income tax nor payroll taxes are low-income people who are elderly, unable to work due to a serious disability, or students, most of whom subsequently become taxpayers. (In years like the last few, this group also includes a significant number of people who have been unemployed the entire year and cannot find work.)

■Moreover, low-income households as a group do, in fact, pay federal taxes. Congressional Budget Office data show that the poorest fifth of households paid an average of 4.0 percent of their incomes in federal taxes in 2007, the latest year for which these data are available — not an insignificant amount given how modest these households’ incomes are; the poorest fifth of households had average income of $18,400 in 2007.[6] The next-to-the bottom fifth — those with incomes between $20,500 and $34,300 in 2007 — paid an average of 10.6 percent of their incomes in federal taxes.

■Moreover, even these figures greatly understate low-income households’ total tax burden because these households also pay substantial state and local taxes. Data from the Institute on Taxation and Economic Policy show that the poorest fifth of households paid a stunning 12.3 percent of their incomes in state and local taxes in 2011.[7]

■When all federal, state, and local taxes are taken into account, the bottom fifth of households pays about 16 percent of their incomes in taxes, on average. The second-poorest fifth pays about 21 percent.[8]…”

if the obama team had any fight, as opposed to a high-level tactical cleverness, they would hammer mittsey-the-moocher with his statements about the 47% who pay no federal income taxes together with his statements about his own tax rates

with this statement (and the one before it):

“■When all federal, state, and local taxes are taken into account, the bottom fifth of households pays about 16 percent of their incomes in taxes, on average. The second-poorest fifth pays about 21 percent.[8]”

the story of consequence to this presidential contest isn’t primarily the accuracy of romney’s tax payments and his fragile sense of honesty,

rather that he paid less in federal income taxes than many very poor americans pay in total taxes – people making $10-30k per year,

There is nothing “penny anti” (or anything else wrong) with speculating about this man’s taxes. If he doesn’t like baseless conjecture, he should release his returns, which is what everyone else running for high office has been doing for ages. He’s clearly hiding something, and to paraphrase Peggy Nooner, it would be irresponsible not to speculate. He and Ryan are both pushing a tax agenda that includes low taxes on people like them. So lets see how he has made his fortune, how much he has paid in taxes, and then examine if we really need to not only subsidize his extravagant lifestyle but also give preferential tax treatment to his vulture capitalist business practices.
As far as I am concerned, he and Ann are not just vultures and parasites, and the burden they place on society is not just because of the taxes they have avoided, either legally or criminally. By far, he greater burden is the destruction to the economy aided and abetted by preferential tax treatment to capital gains income (basically the income yu get from looting the economy)

Mitt did not “take a salary” while heading the SLC Committee as well as when he was Massachusetts Governor.

Which means no wage income, ergo no W-2’s being addressed to his “home residence” or drop box in the Caymans (if that is allowed).

I suspect Mitt hasn’t had “wage income” for many, many years, if ever. Which begs the question, why would a successful felow “forego” an annual salary of $200k (or whatever they pay heads of host committees and governors these days)? That is a lot of money for most of the “middle class.”. And I’d assume that Mitt receives (or received) remuneration for his corporate board service either in stock, deferrals, maybe into his “retirement” or anything that would keep that from being reporrted as wages.

So the answer was he chose to forego a paycheck because the tax write off’s, carve outs and shelters he may have been usuing somehow required it, well, theres yet more evidence that this fellow is NOT LIKE US in a John Kerry sort of way? “I gave up my salary to protect my wealth.”. Obviously the 2010 and 2011 IRS forms show us that neither Mitt or Ann are drawing a wage salary that requires a W2.

There’s got to be a reason for “not taking a salary” besides altruism.

@masaccio: I agree; once a good forensic accountant gets hold of 30 years’ worth of his tax returns, he’s as good as gone to the federal pen. Ann too. I guess it’s like the White House in a way . . . federal, paid for by taxpayers . . . only issue is whether they’d let Ann redecorate . . .

@scribe: Yes, *net* capital gains, and up to $3000 of net capital loss are included in AGI. But you net your current year capital gains against current year capital losses. If there is anything left, you can net that against any carryovers or carrybacks you might have, and if it is a loss in excess of $3000, you can carry that forward 15 years or backwards 3 years to other years against capital gains in other years.
There are various rules limiting the amount of various kinds of losses that can be claimed in a given year, but usually that means they are available to claim as deductions in future or past years (such as net operating losses, passive activity losses, capital losses, etc). Often the super rich will have millions and millions of dollars of such unused losses available from hundreds of partnerships, trusts, S-corporations, C corporations, and vast structures of such entities interrelated so that it is impractical if not virtually impossible to audit anything but a small portion of the tax shelters and loss generating enterprises.
Billionaires often will have real income (for example: cash dividends and interest alone) of many millions of dollars, but a tax bill of only one or two hundred thousand dollars after all the NOLs, PALs, and finally their itemized deductions (which include “charitable” contributions computed on very generous terms, such as letting people deduct the fair market value of a donation, even if they paid much much less for it. And often the FMV is highly inflated).
I used the term “real income” rather loosely there. I meant actual cash. Since most of their wealth in tied up in these other investment vehicle, it is really impossible to say what income and losses from those are real from an outside perspective. I’m sure their accountants know, but they get paid handsomely for keeping that to themselves.